At the end of the day, the implications of not investing in the West Harbour will be significant in the long term.
By Graham Crawford
Published January 22, 2011
We're down to the wire on the Pan Am stadium site, but the vote is about so much more than just selecting a site for the stadium. It's also about ensuring we use the money we're prepared to invest, and the money we're asking others to invest, in a way that ensures we get the best return on our investment.
If you see ROI as only the French word for king, then we've got some work to do. Kidding aside, ROI is a term most people know and think about a lot, both because some like to and also because most of us have to.
If you've only got a set number of dollars to invest or spend, for a lot of people it's about ensuring you get as much for those dollars as possible, whether you're buying a building or buying ingredients to make a dinner for your family.
How you define maximum and return are really the key concepts here. If it were as simple as an interest rate, or a capital gain over time from your house for example, the decision would be pretty easy.
This one is not. That's because this one is about the economic and social multiplier effect of the capital invested. In other words, how can we leverage the money we put in so that others will be encouraged to invest their money too based on our lead so the most people benefit in the end?
While some developers in some parts of the country are prepared to roll the dice and wait for customers to find them, investors in Hamilton are obviously a little more cautious. They prefer to see others go first - to let others test the waters before jumping in themselves.
This is where I stand with the West Harbour investment. But I, and several other contributors to RTH, have already written about why we should invest our Future Fund money there.
I think it's time - and there's precious little of that left - to move beyond just focusing on a stadium, and a franchise, and even a sports legacy, all of which I support with a few caveats. It's time to look at some real numbers and within a broader context.
I don't pretend to have all of the numbers. I haven't had a couple of dozen staff working on my assessment around the clock in the eleventh and a half hour. What I do have are some friends who have some experience with the Hamilton development market. So, I asked around.
Let me preface what follows with an important statement. Although I use an example of a condo development, I'm also supportive of mixed income rental as well. Mixed is always better. Social inclusion should not be an after-thought (see Sarah Wayland's current piece on RTH). Ghettoization, whether for the rich or for those with lower incomes, I trust we can all agree is not the best path forward.
OK, let's say we have some money with which to invest in residential development in Hamilton. Let's say we've got, or at least have access to, $35 million. What can we get with our money?
Consider the following guidelines:
So, what do the dollars look like?
From the developer's standpoint, construction costs would likely run around $200 p.s.f. That means $200 x 168,000 s.f. = $33,600,000 spent locally to build the place. Trades, materials, fixtures, etc. This excludes the fact that the developer had to buy the land, and risk his or her capital to get the project off the ground, not to mention all of the costs associated with the planning and marketing and carrying of the project. Developers will be the first to say these pre-building costs are significant.
From the purchaser's standpoint, a 1,000 s.f. condo overlooking Hamilton's harbour, escarpment and downtown would likely sell for approximately $325,000. Maybe a bit less on the lower floors. Perhaps a bit more on the top floors. With 168 units, that generates around $55,000,000 for the developer.
From the City of Hamilton's standpoint, the developer will pay the City $15,000 per unit in one-time development charges which generates $2,500,000. The City will also receive property taxes from each of the owners of the units of approximately $3,0000 per year. That generates $500,000 per year on an ongoing basis. The retail/commercial property taxes generally run around $3.50 p.s.f. So, if the building had 12,000 s.f. of retail space, it would generate about $42,000+ of property taxes per year.
What's the net result for the City of Hamilton? That's where you have to open your mind to expanding your definition of ROI. Based solely on the obvious numbers, the City of Hamilton would receive:
|Each Year thereafter||$542,000 (plus inflation, etc.)|
This total is from a single development, which is not the only development possible in the West Harbour, even with a stadium.
The likelihood of this development, or other developments like it, happening without government involvement is extremely low. As Tim Mattioli said in the late summer:
The Realtors Association from the beginning has been in support of the WH location. We have an opportunity to clean up a derelict site with Federal and Provincial money that no private developer will ever touch... The West Harbour is where this stadium needs to go as far as the Realtors Association is concerned.
This problem with soil remediation is a fact. The location is outstanding. The quality of the soil is not. And it will not get any better, or any more viable for a private developer, just because we think it will - at least not in our lifetimes.
A catalytic action is required. The Pan Am Games and its stadium is one of those actions, an action that sadly seems to comes along only once in a while, or even a lifetime. In my opinion, Pan Am money doesn't stop residential development in the West Harbour, it ensures it.
What if we accept that two more developments of this kind, including mixed income, high density housing, could happen in the precinct bounded by Cannon, Stuart, Bay and Queen? The development charges alone would generate $7,500,000. Annual property taxes would be in the range of $1,600,000 per year - all from three somewhat large-scale, private sector developments.
Not only that, but more residential means greater stability and health for existing and new retailers in the immediate area. Added to that, we would net possibly $3,000,000 for the Ivor Wynne site if we sold it to a developer, plus the development fees and annual property taxes from the residential that would undoubtedly be developed on the site, ideally at least medium density, mixed income.
All of a sudden, a funding gap that may, or may not, exist starts to look smaller. We give to get.
Here's the sticky part. Some may already have concluded that if this idea of residential intensification is possible and so lucrative in the West Harbour, why would we not make it 100 percent residential?
It's a fair question. If we had unlimited funding, that would be a good idea. The problem is that we don't. Not by a long shot. In fact, we have one Future Fund, and it is about to be reduced by $45,000,000 for the stadium alone.
Some might ask, why can't we expect similar interest in and around a re-built Ivor Wynne site? To test this theory, I spoke to a couple of business people I know, one of whom is a developer. OK, a sample of two, but if you can repeat the poll, please do so and share your results.
I asked, "If you had $10 million of your own money you wanted to invest (use as many or as few zeros as you like to help in personalizing the question) and I said I had two choices for you to consider. One is building a condo development on remediated industrial land north of Barton near Ivor Wynne, or on remediated industrial land north of Barton in the west harbour. Which would you choose?"
Both responded the same way. "There is only one choice. The west harbour."
That's not a slur on Ward 3, any more than it's praise for Ward 2. It's not about Wards, it's about a location. It's about minimizing economic risk and about believing one location will provide a better ROI than the other - not just for developers, but also for all citizens.
After all, the Future Fund is owned by all citizens. That's just the way it is, at least for the foreseeable future in Hamilton. What would you do if you were going to invest $300,000 of your own money? $30,000? $3,000? $300? Which of the two locations would you pick? Why?
If you have access to different numbers than do I, please share them. At the end of the day though, based on the numbers I've pushed, the implications of not investing in the West Harbour will be significant in the long term.
Setting Sail is a great concept, but in the harsh world of economic reality, it's just not going to happen on its own. It needs a catalytic investor. It looks as if governments will have to be that investor in this situation.
Imagine more people of varying incomes living downtown, all within walking distance of incredible publicly-operated and recently enhanced assets such as the Farmer's Market, Main Library, City Hall, Copps Coliseum, AGH, Whitehern, Bayfront Park, Pier 8, Gore Park. Add to the list a GO station near LIUNA, James North, shops and all of a sudden the reality of critical mass is before our eyes and in our neighbourhoods.
We enhance existing assets by adding to them, not remotely, but within their midst. This is the fundamental principle of critical mass.
To all Councillors, I ask that they spend our money wisely. Spend it in a way that it will do the most good for the most people over the long term. Vote to support a catalytic action that builds on a set of existing public and private assets. A catalytic action that is only possible in the immediate term through government investment. Through going first. Through leading the way.
That is your challenge. You know already it's a very difficult one. But, if I may, please don't see your challenge as whether or not to build half a stadium with all of the money.
Good luck to every single citizen in this great city. There's a fork in the road and the path our Councillors select on our behalf will have significant implications well beyond the term of this, and many subsequent, Councils. Think in terms of generations, not just in terms of Grey Cups.
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